ADT 2004 Annual Report Download - page 51

NON-GAAP MEASURES
“Free cash flow” (FCF) and “organic revenue growth” are
non-GAAP measures and should not be considered replace-
ments for financial GAAP results. These measures should
be used in conjunction with the most comparable GAAP
financial measures. Investors are urged to read the
Company’s financial statements as filed with the Securities
and Exchange Commission for more information about the
most comparable GAAP measures.
The difference between Cash Flows from Operating
Activities (the most comparable GAAP measure) and FCF
(the non-GAAP measure) consists mainly of significant cash
outflows that the Company believes are useful to identify.
FCF permits management and investors to gain insight into
the number that management employs to measure cash
that is free from any significant existing obligation. It is
also a significant component in the Company’s incentive
compensation plans. The difference reflects the impact
from: the sale of accounts receivable programs, net capital
expenditures, acquisition of customer accounts (ADT dealer
program), cash paid for purchase accounting and hold-
back/earn-out liabilities, and dividends paid.
The impact from the sale of accounts receivable
programs is added or subtracted from the GAAP measure
because this activity is driven by economic financing
decisions rather than operating activity. Capital expendi-
tures, the ADT dealer program, and dividends are subtracted
because they represent long-term commitments. Cash
paid for purchase accounting and holdback/earn-out lia-
bilities is subtracted from Cash Flow from Operating
Activities because these cash outflows are not available
for general corporate uses.
The limitation associated with using FCF is that it
subtracts cash items that are ultimately within manage-
ment and the Board of Directors’ discretion to direct and
that therefore may imply that there is less or more cash
that is available for the Company’s programs than the
most comparable GAAP measure.
“Organic revenue growth” is an important measure
used by the Company to measure the underlying results and
trends in the business. The difference between reported net
revenue growth (the most comparable GAAP measure) and
organic revenue growth (the non-GAAP measure) consists of
the impact from foreign currency, acquisitions and divesti-
tures, and revenue reclassifications.
Organic revenue growth is an important measure of
the Company’s performance because it excludes items that:
i) are not completely under management’s control, such
as the impact of foreign currency exchange; or ii) do not
reflect the underlying growth of the Company, such as
acquisition and divestiture activity, or revenue reclassifica-
tion. It is also a component of the Company’s compensation
programs. The limitation of this measure is that it excludes
items that have an impact on the Company’s revenue.
FREE CASH FLOW RECONCILIATION
(IN MILLIONS) 2004 2003 2002
Net cash provided by operating activities $ 5,384 $ 5,309 $ 5,423
Decrease in accounts receivable programs 929 119 56
Capital expenditures, net (1,015) (1,274) (2,823)
Acquisition of customer accounts (ADT dealer program) (254) (597) (1,138)
Cash paid for purchase accounting and holdback/earn-out liabilities (107) (272) (625)
Dividends paid (100) (101) (100)
FREE CASH FLOW $ 4,837 $ 3,184 $ 793
ORGANIC REVENUE GROWTH RECONCILIATION Year Ended September 30, 2004
(IN MILLIONS) NET REVENUES FOREIGN CURRENCY DIVESTITURES AND OTHER ORGANIC REVENUE GROWTH
Fire & Security $11,447 5.7% $ 526 5.0% $(82) -0.9% $ 171 1.6%
Electronics 11,822 12.7% 560 5.5% (34) -0.7% 804 7.9%
Healthcare 9,110 8.2% 292 3.5% (5) -0.1% 403 4.8%
Engineered Products 6,007 33.6% 298 6.6% 759 16.8%(1) 452 10.1%
Plastics & Adhesives 1,742 0.7% 9 0.5% – 0.0% 2 0.1%
Corporate and Other 25 NM – NM – NM 11 NM
TOTAL NET REVENUES $40,153 11.6% $1,685 4.8% $638 1.6% $1,843 5.2%
(1) Amount includes $739 million related to a revenue reclassification at Infrastructure Services for certain subcontract costs previously treated as pass-through to customers and
$18 million of Infrastructure Services revenue which resulted from the consolidation of several joint ventures under FIN 46 during fiscal 2004.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This report may contain certain “forward-looking statements” within the
meaning of the United States Private Securities Litigation Reform Act of
1995. These statements are based on management’s current expecta-
tions and are subject to risks, uncertainty, and changes in circumstances,
which may cause actual results, performance, or achievements to differ
materially from anticipated results, performance, or achievements. All
statements contained herein that are not clearly historical in nature are
forward-looking and the words “believe,” “expect,” “estimate,” “plan,”
and similar expressions are generally intended to identify forward-looking
statements. The forward-looking statements in this annual report include
statements addressing the following subjects: future financial condition
and operating results. Economic, business, competitive, and/or regulatory
factors affecting Tyco’s businesses are examples of factors, among others,
that could cause actual results to differ materially from those described
in the forward-looking statements. More detailed information about these
and other factors is set forth in Tyco’s Annual Report on Form 10-K for
the fiscal year ended September 30, 2004. Tyco is under no obligation
to (and expressly disclaims any such obligations to) update or alter its
forward-looking statements whether as a result of new information, future
events, or otherwise.
FORM 10-K AND SEC AND NYSE CERTIFICATIONS
A copy of the Form 10-K filed by the Company with the Securities and
Exchange Commission (SEC) for fiscal 2004, which includes as Exhibits
the Chief Executive Officer and Chief Financial Officer Certifications
required to be filed with the SEC pursuant to Section 302 of the
Sarbanes-Oxley Act, may be obtained by shareholders without charge
upon written request to Tyco International, 2nd Floor, 90 Pitts Bay Road,
Pembroke HM 08, Bermuda. The Form 10-K is also available on the
Company's website at www.tyco.com. The Company has filed with the
New York Stock Exchange (NYSE) the Certification of its Chief Executive
Officer confirming that the Company has complied with the NYSE corpo-
rate governance listing standards.